Office developers gear up for a supply gap
New office completions provided more than 226,000 sq m to the Warsaw market in the first half of 2021, but demand continued its downward trend; an undersupply of office space is being forecasted by experts, reveals a summary of the second quarter of 2021 on the Warsaw office market from Cushman & Wakefield.
Economy: Poland’s GDP is estimated to have seen a double-digit growth in Q2
In 2020 the coronavirus pandemic pushed Poland into its first recession in 30 years with a GDP contraction of around 3.7%. In line with Moody’s forecasts, implications of another wave of the pandemic reverberated through the economy also during the first quarter of 2021. However, thanks to a low base effect and an improving market sentiment, Poland’s GDP is estimated to have hit 10-11% in Q2 2021 and is expected to reach around 5.8% for the whole year.
Supply: with few new projects breaking ground in 2021, a supply gap is on the cards for 2023-2024
In the first half of 2021, the total office stock in Warsaw topped 6 million sq m following the completion of more than 226,000 sq m of new office space, which accounted for close to 66% of the total office supply scheduled for delivery in 2021. The largest office completions included Ghelamco’s Warsaw Unit (56,400 sq m), Karimpol’s Skyliner (48,500 sq m) and Generation Park Y built by Skanska Property Poland (44,200 sq m). Warsaw’s development pipeline currently stands at close to 393,000 sq m, which is nearly half the average for the last five years, and is due for delivery in 2021-2024.
“We estimate that nearly 342,000 sq m will be added to the market in 2021, followed by approximately 230,000 sq m in 2022. Given the current pandemic situation and subdued occupier activity, we expect a limited number of new projects coming onto the market in 2023-2024, which is likely to result in an undersupply in those years. There is currently only one project underway whose completion is scheduled for 2024: The Bridge, which is being developed by Ghelamco. However, an increasing number of developers are closely monitoring the market and analysing the situation with regard to commencing new projects in the next six to nine months,” – says Jan Szulborski, Senior Consultant, Consulting & Research, Cushman & Wakefield.
Vacancy rate: the build-up of new supply pushed office availability up
Warsaw’s vacancy rate has continued its upward trend since the second quarter of 2020, largely driven by the economic uncertainty caused by the outbreak of the Covid-19 pandemic. Due to the subdued occupier activity in recent quarters and the build-up of new supply in the last three months, the vacancy rate rose to 12.5%, up by 1.0 pp quarter-on-quarter and up by 4.6 pp year-on-year.
In absolute numbers, this translates into office availability at close to 760,000 sq m. Additionally, office projects completed in the first half of the year were over 48% let, which level is relatively high given the build-up of new supply in the surveyed period and the decline in occupier activity caused by the pandemic.
Demand: the gradual return of tenants to offices is an important driver of leasing activity
Demand for office space has continued its downward trend since the onset of the pandemic. The third lockdown, economic instability and the risk of a fourth wave of infections caused a slowdown in leasing activity which totalled only 249,300 sq m in the first half of 2021, down by 25% compared to the same period in 2020. New leases and expansions (net take-up) accounted for approximately 60% of all deals in the first six months of 2021, a figure slightly below that recorded in the same period last year.
“How the office market develops will largely depend on how the pandemic unfolds and on the rate of vaccination. However, with daily infection rates currently being low, an increasing number of companies have either returned or are planning to return to office work. In our opinion, this will provide another important incentive to resume office leasing processes that were put on hold due to the pandemic, with effects likely to be seen in late 2021 and early 2022,” says Vitalii Arkhypenko, Junior Consultant, Consulting & Research, Cushman & Wakefield.
Rental rates: office rents unchanged since the previous quarter
Following a downward rental correction in the last 12 months, prime headline rents currently stand at EUR 23.00–25.00/sq m/month in the Centre and at EUR 13.50–16.50/sq m/month in non-central locations.
“Looking ahead, headline rents are expected to remain stable in the coming quarters, supported by a gradually improving pandemic situation and a recovery in leasing activity,” adds Jan Szulborski.
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Cushman & Wakefield
Last Updated on August 18, 2021 by Karolina Ampulska